20.01.2009
DVB predicts that at least 10 per cent of the scheduled aircraft deliveries in 2009 will evaporate because of the funding gap
Talking to industry leaders over the past few weeks, Bertrand Grabowski, member of the Board of Managing Directors of DVB Bank SE, and responsible for Aviation, said: "Both the current economic downturn and the credit crunch will have a very stressing effect on availability of funds for new aircraft deliveries this year. At least ten per cent of the current scheduled deliveries of approx. USD 73 billion this year may have to be deferred or cancelled in order to restore some kind of balance between the supply and the demand for financing. As manufacturers will try to avoid white tails at any cost, the cancellations and long term deferrals may have to result in the reduction of production, especially when it becomes clear towards year end that demand will not see a strong short term recovery. Most of the analysis that are proposed to the public on the issue of the funding gap are flawed as they ignore the drag on lending capacity that is coming from refinancings and debt funding of sale and lease back transactions."
DVB has arranged and underwritten in the past three months close of half of billion of dollars of refinancings from airlines that were smartly preparing for the continuation of the credit crunch in 2009.
"Lessons have been learnt" Grabowski commented. "And for airlines too, cash is key. We are seeing prime and non prime carriers offering sale and lease back opportunities or simple mortgage loans at advance rates and pricing levels that are very attractive to the financiers. As a result, a significant portion of the global bank lending capacity may be moving away from new deliveries financing. The expectation that this cash eventually will go back to the manufacturers to pay for new deliveries some way is wrong. Most of the liquidity generated from sale and lease back transactions and refinancings will serve to pay for other expenses, such as margin calls on fuel hedges, to increase cash hold-backs at credit card service companies or simply to serve current debt services in an environment of weakening operating cash flows."
On financing needs for 2009, Grabowski estimates that Class A airlines, Chinese carriers and the three main Middle East main carriers will have no issue accessing funds. But this accounts only for a maximum of USD 30 billion. Remains USD 43 billion to be found. At best, ECAs will be able to contribute just over USD 15 billion together, leaving a significant share to banks to fund lessors and carriers.
"To expect banks, for that segment of the market, i.e. non Class A and Co counterparties, in the absence of capital markets, to absorb up to USD 28 billion of new deliveries financing is wishful thinking", Grabowski stated. "Manufacturers' contribution to funding, for both accounting and credit crunch reasons, will remain symbolic. Last, we do not see any significant impact on the global market from the very few 'regional banks' that are rumoured to look at airlines financing, with the exceptions of some Chinese institutions that will concentrate, at least for 2009, on their domestic market."
DVB Bank has anticipated the unavoidable downturn as announced two years ago by DVB's Aviation Research. DVB has over the past three years completed the right platform to support now carriers, lessors and investors through capital and service. As a prime Aviation "Merchant" Bank, DVB has had a record level of activity in 2008 providing more than USD 3 billion of new financing at risk (excluding ECA, which is not a target product for DVB). DVB Bank expects this trend to continue in 2009.
Note to Editors:
DVB Bank SE, based in Frankfurt/Main, is the leading specialist in international transport finance. DVB offers integrated financing solutions and advisory services in respect of Shipping, Aviation, and Land Transport. The Bank operates out of offices in Frankfurt/Main, Hamburg, London, Cardiff, Rotterdam, Bergen/Oslo, Piraeus, Zurich, Singapore, Tokyo, New York and Curaçao. DVB Bank SE is listed at the Frankfurt Stock Exchange (ISIN: DE0008045501).
Contact:
Prof. Dr. Borislav Bjelicic, Phone +49 69 9750-4390, Fax +49 69 9750-4333, DVB Bank SE, Corporate Communications, Platz der Republik 6, 60325 Frankfurt/Main, Germany, borislav.bjelicic@dvbbank.com, www.dvbbank.com
DVB has arranged and underwritten in the past three months close of half of billion of dollars of refinancings from airlines that were smartly preparing for the continuation of the credit crunch in 2009.
"Lessons have been learnt" Grabowski commented. "And for airlines too, cash is key. We are seeing prime and non prime carriers offering sale and lease back opportunities or simple mortgage loans at advance rates and pricing levels that are very attractive to the financiers. As a result, a significant portion of the global bank lending capacity may be moving away from new deliveries financing. The expectation that this cash eventually will go back to the manufacturers to pay for new deliveries some way is wrong. Most of the liquidity generated from sale and lease back transactions and refinancings will serve to pay for other expenses, such as margin calls on fuel hedges, to increase cash hold-backs at credit card service companies or simply to serve current debt services in an environment of weakening operating cash flows."
On financing needs for 2009, Grabowski estimates that Class A airlines, Chinese carriers and the three main Middle East main carriers will have no issue accessing funds. But this accounts only for a maximum of USD 30 billion. Remains USD 43 billion to be found. At best, ECAs will be able to contribute just over USD 15 billion together, leaving a significant share to banks to fund lessors and carriers.
"To expect banks, for that segment of the market, i.e. non Class A and Co counterparties, in the absence of capital markets, to absorb up to USD 28 billion of new deliveries financing is wishful thinking", Grabowski stated. "Manufacturers' contribution to funding, for both accounting and credit crunch reasons, will remain symbolic. Last, we do not see any significant impact on the global market from the very few 'regional banks' that are rumoured to look at airlines financing, with the exceptions of some Chinese institutions that will concentrate, at least for 2009, on their domestic market."
DVB Bank has anticipated the unavoidable downturn as announced two years ago by DVB's Aviation Research. DVB has over the past three years completed the right platform to support now carriers, lessors and investors through capital and service. As a prime Aviation "Merchant" Bank, DVB has had a record level of activity in 2008 providing more than USD 3 billion of new financing at risk (excluding ECA, which is not a target product for DVB). DVB Bank expects this trend to continue in 2009.
Note to Editors:
DVB Bank SE, based in Frankfurt/Main, is the leading specialist in international transport finance. DVB offers integrated financing solutions and advisory services in respect of Shipping, Aviation, and Land Transport. The Bank operates out of offices in Frankfurt/Main, Hamburg, London, Cardiff, Rotterdam, Bergen/Oslo, Piraeus, Zurich, Singapore, Tokyo, New York and Curaçao. DVB Bank SE is listed at the Frankfurt Stock Exchange (ISIN: DE0008045501).
Contact:
Prof. Dr. Borislav Bjelicic, Phone +49 69 9750-4390, Fax +49 69 9750-4333, DVB Bank SE, Corporate Communications, Platz der Republik 6, 60325 Frankfurt/Main, Germany, borislav.bjelicic@dvbbank.com, www.dvbbank.com